error code 2000-0146

I have a dell inspiron 15r laptop with Windows 7 home basic. When i power on my computer, it displays 'Windows didn't startup properly last time' and gives me two options: Repair your computer and start windows normally. No matter what i choose, i land up on a blue screen(where microsoft is supposed to run repair). But after that nothing appears on the screen: just the blue screen and on it my mouse pointer(remains like this for hours). So, i ran dell diagonastics and that is when it told me that there was a hard disk error (code 2000-0146). I inserted a Windows Home Premium CD and told bios to boot from cd(hoping to install windows) but again I land up on the same Windows didn't startup properly screen.

In my bios options shown by F2, AHCI option is set(i list this fact because in many threads it is told that the in bios options ATA was set).

I have most of my files backed up on an external hard drive. So, i can proceed with formatting of hard drive. Also, i have the 2 dvds on which i did dell data local backup. Also, suggest if i should use any tools to format the hard drive.